Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business.

\begin{array}{lrr}&\text { Year } 1&\text { Year } 2\\\text { Sales } & \$ \overline{200,000} & \$ 2 \overline{50,000} \\\text { Cost of goods sold } & 140,000 & 162,500 \\\text { Cash collections: } & & \\\quad \text { Year 1 sales } & 100,000 & 80,000 \\\quad \text { Year 2 sales } & & 130,000\end{array}

-Which one of the following entries properly records the deferral of gross profit on Year 2 installment sales not yet collected?
A) DR Cost of installment goods sold

\quad 62,500

DR Deferred gross profit-Year

2 \quad 87,500

CR Installment sales revenue

\quad 150,000

\begin{array}{lr}\text { DR Cost of installment goods sold } & 302,500 \\\text { DR Deferred gross profit-Year 1 } & 60,000 \\\text { DR Deferred gross profit-Year 2 } & 87,500\\\text { CR Installment sales revenue }&450,000\end{array}

C) DR Deferred gross profit-Year 2

\quad

\quad

42,000
CR Deferred gross profit-Adjustment to
accounts receivable-Year 2

\quad

\quad

\quad

\quad

42,000
D) DR Deferred gross profit_-Adjustment to accounts
Receivable-Year 2

\quad

\quad

42,000
CR Deferred gross profit-Year 2

\quad

\quad

42,000

Under the Installment Sales Method,interest Charged by the Sellers Is

Multiple Choice

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